SPECULATION IN THE INDIAN ECONOMY 51
ment prices for agricultural products by the government. While these act as only a floor price the actual market prices are even higher. Thus, if stocks are held over a year, in addition to the normal trade margin, extra profits could be gleaned by the simple fact that the floor price itself has gone upwards. Speculation in agricultural commodities, though profitable, need not yield the rate of return which speculative capital is on the look-out for, i.e., a rate of return substantially above the rate of interest in the money market. This is also due to the unpredictable direction of government policy. Take the case of the recent spurt in sugar and edible oil prices. The price rise was so rapid and accelerating that, under severe pressure, the government, instead of trying to unearth hoarded stocks and release them in the market, decided to import the same and flood the market. This resulted in prices crashing and not only did the speculators lose money but so also did the primary producers. Hence, speculative capital has been for some time, on the look-out for more lucrative areas. This brings us to the question of the stock market.
The history of the stock market is one of swings with long periods of depressed conditions. In the 1950s, there was some activity, but by the early 1960s, this activity was tapering off and remained in that condition for more than a decade. In the early 1980s, there was some revival of stock market activity but not to such an extent as to be termed impressive. In 1981-82, there was a 400 per cent jump in the stock absorption for new issues (see table I) while the number of companies entering the stock market to raise capital doubled. This pace has been maintained with minor swings. The feverish pace had reached a peak in 1985-86 with share prices reaching an all-time high, more so in some selected scrips. In addition, debenture issues, both convertible and non-convertible, were offered to the public at all-time high interest rates. Unconfirned estimates place the total stock absorption at over Rs. 2000 crores. Compare this with an average of Rs. 117 crores between 1971 and 1976.
The reason for this sudden increase in stock market activity is obvious. Ever since the Congress-1 government came back to power, there has been a gradual process of providing greater incentives and subsidies for the corporate sector in order to help it grow. This was quite in line with the government's overall policy of import liberalisation, the pursuit of a luxury consumption-led growth strategy, and so on. All these measures led to expectations of larger profits and faster capital appreciation in the corporate sector. The high-point came with the Rajiv Gandhi government's budget of 1985-86 and the pre-budget policy formulations. The private corporate sector became the beneficiary of hitherto undreamt-of concessions and liberalisation. This brought forth even higher expectations, not only for the immediate period but for the longer period also, of further incentives and concessions. The bulls in the stock market never had it so good.
Speculative capital, thus, moved en masse into the stock market. Not